Government firms up commitment to renewable energy, but will it be enough to convince potential investors?

The UK renewable energy sector has praised the government for its increased commitment to the industry, by extending the requirement for electricity suppliers to derive energy from renewable sources by 50%, from 10% in 2010 to 15% in 2015. Under the new Renewable Obligation, companies will now have to continue investment in green energy if they are going to meet the new 15% target by 2015, set by the government this week. Both environmental groups and renewable energy associations have welcomed the new targets, which will require the installation of an additional 5,000 megawatts of new renewable capacity. These organisations have been campaigning for an increase in the 10% target by 2010, fearing this amount did not give investors long enough to see returns on their energy investments and may have been construed by investors as only a short term government commitment, therefore creating a nervous environment for investment.

Announcing the news at the Renewables Advisory Board annual meeting, Energy Minister Stephen Timms said: "We have responded to the calls of the renewable sector to give stability beyond 2010. In giving an increased level of certainty to the renewables industry, we are providing the ingredients for more confidence on the part of the investment sector.""I am now looking to the industry to respond. We need to get those developments with consents and capital grants built as soon as possible if we are to meet our renewables targets, and to sustain and create more jobs in the UK," he continued. Marcus Rand, the British Wind Energy Association's CEO, described the announcement as an 'early Christmas present' for the sector, and pressed ahead for further government commitments for 2020. "Today's announcement will be seen as a key stepping stone to making our 20% by 2020 renewable aspiration a working reality," he said.

However, there is doubt amongst some market investor experts as to whether this announcement will actually create the certainty needed for investors to further build up the renewables market. According the merchant-banking group Climate Change Capital (CCC), the Power Purchase Agreements (PPAs), which guarantee a fixed price return for investors, are few within this sector. CCC does not see an increase of the Renewable Obligation alone changing this situation. Anthony White, head of policy and market analysis at Climate Change Capital said: "By itself, the measure will not reduce the uncertainties by enough to allow new wind farms to be financed by conventional project finance techniques. However, it now may be possible to devise more innovative financing structures so that the level of construction required becomes feasible”."The financial sector needs to be more innovative in the way it understands the risks of the renewables sector," Lionel Fretz, Executive Director at CCC told edie. He suggested one way for the government to help overcome this was to work with the private sector structuring an arrangement that would give a minimum price level for renewable energy, in order to boost confidence in the market